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Many countries in the world have realized the positive impact of foreign direct investment (FDI) on development, and India is not an exception.
The Indian government discusses the possibility of opening the multi-brand retail sector to foreign direct investment. If the decision to allow 51% foreign share in the retail sector is taken into effect, the country will likely attract $ 2.5 – 3 billion during the next 5 years. Union Cabinet Minister, Anand Sharma, who is in charge of commerce, industry and textiles in India, provided the list of benefits, and the positive impact of foreign direct investment on the country’s retail sector and fashion and design industry.
India has a low productivity of food grains and has an inefficient system of distribution. The impact of an FDI in organized retail will increase the productivity and efficiency of distribution.
Secondly, if to take into account the existing imperfections of Indian retail production and distribution systems, it is likely that the prices on retail products and food will keep on increasing. That will influence the level of wages and consumer expectations and therefore will turn into an inflationary process that is negative for Indian economy. For its part, the impact of FDI can be balancing and prevent the economy from inflation in order to maintain trust and to come up to expectations of various stakeholders “without putting undue disproportionate pressure on the growth momentum” said RBI deputy governor, Subir Gokar, during the Government discussion. Since FDI will lead to the improvement of production and distribution of goods that are more consumed in the country, the prices on them will stay low.
Moreover, the fashion and textile retail sector will be positively affected by the increase of FDI scale.
The world-known luxury fashion brands like Gucci, Louis Vuitton, Jimmy Choo that will be allowed to the Indian market can bring new opportunities to the luxury market. Consumers will have better shopping choice; moreover, plenty of opportunities can be opened for young Indian fashion and textiles designers. Indian design will get credibility in the world fashion society.
According to the officials, Swedish furniture producer, IKEA, plans to invest 1.5 billion euros in the Indian retail sector to set up 25 stores. The company has already launched a partnership with India’s Handicrafts Department to help to develop the design industry and to build capacity for Indian handicrafts-men and carpet weavers. There are plans to develop next generation training program for Indian exporters to guarantee that they follow the best worldwide practices related to labor legislation that forbids child and forced labor. Therefore, it is apparent that the positive impact of foreign direct investment is in creation of opportunities for the development and invigoration of the Indian retail sector.